hows your responses and what was marked correct and Incorrec

hows your responses and what was marked correct and Incorrect from your previous attempt Award: 14.2B out of 20.00 ponh A project that costs $2,200 to install will provide annual cash flows of $570 for the next 5 years. The f accepts projects with payback periods of less than 4 years. a-1. What is this project\'s payback period? (Round your answer to 3 decimal places.) Payback period 3.8 yeas a-2. Will the project be accepted? O ® Yes ONo b-1. what is project NPV if the discount rate is 3%? (Do not round intermediate calculation. your answer to 2 decimai places.) NPV Should this project be pursued? OYes 2810.43 b-2. ONo b-3. what is project NPV if the discount rate is 10%? (Negative amount should be Indicated by a elgn. Do not round intermedlate caiculatione. Round your anawer to 2 decimal place8.) NPV .$1 160.75 b-4. Snouid this project be pursued? OYes b-5. Will the firms decision change as the discount rate thanges? References

Solution

Requirement (a) – 1

Payback Period = Initial Investment / Annual cash flow

= $2,200 / 570

= 3.86 years

Requirement (a) – 2

YES. The Project Should be accepted, Since the Project’s payback period is less than the required payback period of 4 years

Requirement (b) – 1

NPV at 3% Discount Rate

Net Present Value [NPV] = Present value of Annual cash flows – Initial investment

= $570[PVIFA 3%, 5years] - $2,200

= [$570 x 4.5797071] – 2,200

= $ 2610.43 – 2,200

= $410.43

Requirement (b) – 2

YES. The Project should be pursued, since the NPV is Positive $410.43

Requirement (b) – 3

NPV at 10% Discount Rate

Net Present Value [NPV] = Present value of Annual cash flows – Initial investment

= $570[PVIFA 10%, 5years] - $2,200

= [$570 x 3.790786769] – 2,200

= $ 2160.75 – 2,200

= -$39.25 [Negative NPV]

Requirement (b) – 4

NO. The Project should not be pursued, since the NPV is Negative -$39.25

Requirement (b) – 5

YES. The Firms decision will change as the discount rate changes.